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CME: Cattle Slaughter Rates High in August

05 September 2016

US - Steer and heifer slaughter posted another remarkable month in August, following on the heels of a robust July, write Steve Meyer and Len Steiner.

The tonnage produced from those animals was a key driver behind lower cash fed cattle prices and the CME’s Live Cattle futures contract, especially in the second half of August.

As discussed in recent Daily Livestock Report articles, another factor contributing to lower cash fed cattle prices was lacklustre interest by meat buyers a we got closer and closer to the Labor Day weekend.

Of course, a key to cattle and beef prices is the demand side of the supply-demand market dynamic and buyer needs coming out of Labor Day sales will be an important yardstick.

But, supply should not be overlooked and an important point is the rate of cattle marketings in recent months will have at least some impact on availability and/or weight of fat cattle for harvest in the next few months.

First to review the July 1, 2016 quarterly steers on-feed year-over-year inventory, it was 40,000 head below year ago levels.

While this is not a huge difference, since the total inventory was 6.9 million head, it is key to note the direction was down. The heifer inventory was up 160,000 head from a year earlier, to 3.5 million head.

Now if we look at slaughter totals from July 1 through August 31 (the last week of August are still estimates) and compare those totals year-over-year, we slaughtered about 190,000 more steers and about 120,000 more heifers compared to July 1 through August 31 of 2015.

In total, we slaughtered 2.9 million steers and 1.3 million heifers in that time frame. Much of that increase was a return to normal marketing rates compared to the depressed feedlot sales a year ago.

Obviously we had the cattle, since they went to the packers, but it speaks to the significant increase in supply of boxed beef during those two months, specifically from the steer side and interesting since we started with fewer steers in the feedlot as of July 1 compared to a year ago.

This translated to larger beef supply levels and weekly beef production, for the week ending August 20th tonnage produced was the largest for any week since December of 2013. That large increase in tonnage is a key driver depressing boxed beef and cattle prices ahead of Labor Day.

How has this increased slaughter rate impacted fed cattle supply down the road? Can we keep up a 5 per cent year-over-year increase in steer slaughter through the end of the year, assuming placements made after July will not be slaughtered this year?

The Livestock Marketing Information Center’s analysis says probably not, at least not at carcass weights anywhere close to the record highs posted a year ago. In fact, based on several assumptions, we would be about 500,000 steers short of maintaining that increased steer slaughter level.

Heifers available for harvest should be well above a year ago and heifer slaughter levels have increased dramatically the past few weeks compared to levels of recent years. So, increased heifer slaughter will compensate for some of the expected September-December relative tightening in available steers, but the full balance will not be made up by heifers. And remember heifers have carcass weights much lighter than steers.

Again, acknowledging there are several assumptions to this analysis that could change significantly, and realistically heavy weight feeders placed early to mid-August could see the packing plant by the end of the year, it does not change the fact that the steer slaughter pace during July and August has very likely pulled ahead animals originally intended for September and October slaughter.

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